TEACH CHILDREN MONEY SKILLS
A part-time summer job can teach teens the value of earning a paycheck, but not necessarily how to manage their money wisely.
That’s a job parents should take on, and the earlier the better, experts say. Teaching teens the basics of saving, following a budget and the principles behind responsibly managing checking and credit accounts can instill healthy financial habits that will serve them well as adults.
But many U.S. teens aren’t being taught these skills, according to a report released last month by the Programme for International Student Assessment. The organization, which evaluated financial literacy among thousands of 15year-olds in 14 countries, concluded that one in five American teens lack basiclevel skills, more than in Russia, China or Poland.
“Financial literacy is a key component to understanding general money management and credit basics, but a majority of American teens are not fi“Not
nancially literate,” said Heather Battison, vice president at credit reporting company TransUnion.
Here are some ways parents can begin teaching their children money management skills, even from a very young age:
Start early: Teaching kids good financial habits can begin when children are around 5 years old, or when they typically begin asking for an allowance, according to a guide for parents published by the National Endowment for Financial Education (NEFE), a nonprofit focused on financial literacy.
Parents can expect their child to spend their allowance all at once, but should use that as an opportunity to discuss how to treat the next week’s allowance.
“There are many things at actually quite a young age that children will understand,” said Ted Beck, the NEFE’s president and CEO.
As children hit their preteen years, NEFE’s guide also suggests parents explain how budgets work, as well as the basic principles of investing.
Focus on savings: Encourage kids to set aside money they get for doing chores or presents in their own savings account. This will help show them the importance of saving up for a big purchase, and how bank savings accounts work. Share your missteps: Parents should be open to discussing their own financial mistakes with their kids, as long as the concepts in the lesson would be something their children
are old enough to understand, Beck said.
“It’s OK to show you’ve made some mistakes and what you learned, but do it as a discussion, not a lecture,” he said.
Careful credit use: Kids under 18 are not allowed to open a credit card account on their own. Use of prepaid gift cards in high school can help establish good credit use habits.
“Explain to them the importance of responsible credit management like paying bills on time and using a small portion of their available credit to maintain a low credit utilization,” Battison said. “We hear from consumers often that have low credit scores because of some misstep that they made when they were younger.”